In the most important pre-Budget statement for many years, VAT will be cut from 17.5 per cent to 15 per cent - the first time it has ever been reduced.

There will be a clear aim to put more money in families' pockets with a series of tax cutting measures in an attempt to get them spending again.

But Mr Brown and his Chancellor will have to admit that borrowing is set to move to £117billion within the next two years. The equivalent of £4,000 for every taxpayer.

There has already been widespread scepticism among retailers over the move to cut VAT to 15 per cent, the lowest level allowed under European Union law.

One leading businessman said that if the recent price cutting campaign offering discounts of up to 25 per cent at the biggest High Street stores had not enticed shoppers to spend, a reduction in VAT would not work either.

There has also been criticism that tax cuts now will mean tax rises in the future and that today's report will amount to a "boomerang budget".

Among the measures Alistair Darling is expected to announce are:

*Home owners to be given three-months "grace" before repossession proceedings begin.

*An extension of the £120 rebate for basic-rate taxpayers

*Small businesses to get more time to pay corporation tax, VAT and National Insurance bills

* A delay in one per cent tax rise on small business profits

* Delay on increase in vehicle excise duty in older cars

* Tax exemption on foreign dividends for bigger firms

* VAT cut from 17.5 per cent to 15 per cent

Mr Darling will also cut his economic growth forecast for next year from the 2.5 per cent figure published in the Budget in March to a negative figure - most likely worse than minus 1 per cent.

The cut is greater in scale than those inflicted on their forecasts by any Chancellor in any previous recession since the 1970s.

David Cameron, the Tory leader, said that he was unconvinced about the likely success of the VAT cut.

John Redwood, the former Cabinet minister and Chairman of the Economic Competitiveness Policy Group set up by Mr Cameron, added that the idea of VAT cuts stimulating the economy showed that Labour had "lost the plot."

He said: "Just about the worst tax cut they could design is a VAT cut. It's costly on the revenue, but will have little impact on the problem. People do not feel well off. Offering them 2.5 per cent off items at a time when the shop and showroom prices are already 10-20 per cent down is not going to do much.

"It's not fair on the poor. Essentials that make up most of the budgets of the lower paid are already VAT free. The biggest gains will be for those who buy expensive wines, flashy cars and use lots of petrol."

Mr Brown insisted that he was not taking a gamble. He accused Mr Cameron of returning to the old Tory days when they refused to offer help because unemployment was "a price worth paying" during a recession.

He said: "I don't see this is a gamble, I see this as necessary, responsible action that any sensible government would want to take. Those people who say, do nothing now, would leave people as in the '80s and the '90s, without hope that their mortgage problems could be sorted out or their jobs problems could be sorted out.

"It would be lacking in compassion as well as irresponsible in my view."

He said he "despaired" of the "Conservative idea" to "do nothing now" and "leave people to face the storm."

However, he also gave his strongest signal yet that Mr Darling will set out that how the debt needs to be paid back.

The Chancellor has privately been adamant that he will not let the pre-Budget report be seen as "irresponsible" and that tax rises later are almost inevitable.

Mr Brown said there would be no "hidden manifesto" and people will be "absolutely clear" about what the measures mean.

In a speech to the CBI Mr Brown is expected to say: "A boost to the economy to sustain growth that will help to keep businesses open and protect people's jobs and homes. But to act now means we have also a duty to set out what we will do later."

Mr Darling will also announce £5 billion of efficiency savings to offset some of the cost of borrowing.

Mr Cameron warned that the public would be "shocked" by the level of borrowing which he claimed would be the "biggest in the history of British government." He said Mr Brown was storing up a "big tax bombshell".

He said: "I think people are going to be shocked tomorrow when they see the extent of Government borrowing. Maybe £80 billion this year, before the recession's even properly started, and possibly over £100 billion next year.

"And next year that is over £4,000 extra for every family in the country. So I do have a real concern about a Government going on a borrowing binge that even they are now admitting is going to lead to much higher taxes later."

Mr Darling will extend the tax rebate, which had been due to end in April, to those who had been hit by the abolition of the 10p tax rate. It will mean a further £120 next year for basic-rate tax-payers.

Small businesses will be given some relief by Mr Darling. The planned rise on small business profits - those who make no more than £300,000 a year - from 21 per cent to 22 per cent will be delayed for one year.

Treasury sources also revealed that the Inland Revenue will take a "far more relaxed" attitude to when small firms pay their tax bills.

Mr Darling will also use his hour long Commons statement to issue a warning to the banks to start lending again to businesses.

There is likely to be new announcements on public works programmes with the Chancellor determined to ensure his health and education spending levels are not radically changed.

He will also attempt to stop a stream of foreign nationals based in Britain leaving the country by unveiling a tax exemption on foreign dividends.